There are two ways of examining the capital outlay figures for FY19. There has been a 12 per cent rise in capital investment, which has gone up by Rs 206.8 billion year on year.

The other way of looking at it is that the capital outlay for FY18 had dipped by Rs 190 billion. So essentially there is no growth in absolute numbers pencilled in the capital spend in Finance Minister Arun Jaitley’s fifth Budget.

It may have meant less had the base on which the capital outlay rose and fell was substantial. Even after the rise it will be Rs 1.84 trillion defence outlay. These are puny numbers. They are made worse when one considers the fact that gross capital formation has been declining. For the latest reported year, FY17, it was 30.8 per cent of GDP. It slipped from 34.7 per cent in FY14.

When one parses the numbers further, fixed capital formation, which accounts for 70 per cent of the capital spend, shows a more worrying trend. In FY18 it was 26.4 per cent, having come down from 28.5 per cent. This means gross capital formation is not expected to repair soon.

According to the CMIE data set, the rate of stalled projects is close to Rs 1 trillion. So along with the private sector, the government has now joined the slowdown. A few days ago the Economic Survey had noted that the key to reviving the economy lay in reviving private investment and exports. These are the two key drivers for investment revival in the economy.

But to counter the inadequate allocation, the finance minister has tried to compensate by egging on public sector companies to approach the markets directly. This has the advantage that such spending will not impinge on the government’s fiscal numbers.

Though here too there is a catch. The resources of the public sector enterprises, the government expects it will raise from the markets, are unchanged for FY19 at Rs 4.78 trillion from the revised estimates for FY18.

“Besides the government is now financing important expenditures of capital nature through extra budgetary resources where borrowing would be allowed for the purpose and shall be met through budget allocations to the ministries and departments,” the fiscal policy statement of the government makes clear.

NITI Aayog Vice Chairperson Rajiv Kumar said these were practical options, given the financial constraints of the government.

In his Budget speech, Jaitley said he would ask the financial sector regulators, including the RBI, to nudge corporates to access bond markets. “Sebi will also consider mandating, beginning with large corporates to meet about one fourth of their financing needs to be raised from the bond market.”

It is to facilitate state-owned companies to dig deep into the bond markets that the government feels the need to keep the fiscal deficit in check. As the Fiscal Policy Strategy statement says, “the government desires a liquid and vibrant secondary market for bonds... so that debt is raised in a cost effective manner.”

The other part of the commitment is to reduce public debt, which too the finance minister has committed to do in the review of fiscal policy. These changes are vital as in the absence of fiscal space, Jaitley has to depend on state-owned enterprises to generate capital expenditure.

Expenditure more than what is budgeted, says finance ministry

According to the calculations of the finance ministry, aggregate capital expenditure for FY19 is projected to increase to Rs 3 trillion from the revised estimate for FY18 at Rs 2.73 trillion. “Capital expenditure is therefore anticipated to return to the path that was being followed earlier.

As a per cent of GDP capital expenditure is expected to be 1.6 per cent in 2018-19”. This is inclusive of the defence capital outlay also. To the extent that defence orders are captured by India-based manufacturing entities, this would provide a fillip to domestic investment expenditure. But the ministry claims more. In the fiscal policy strategy statement it claims even this expenditure, however, “does not reflect the actual capital expenditure on the ground by the government”.

This is because of at least two reasons. The fact that all grants the government gives to its bodies for the creation of their capital assets, amounting to Rs 1.95 trillion, is usually counted as revenue expenditure of the Centre whereas it is capital spend. The expenditure on rail construction by the Railways is also not captured because it is from the resources generated by them independent of the government of India’s Budget allocations.